Camil Yazbeck, partner and investment director - hospitality & leisure at Patron Capital, will be a featured speaker at the Mediterranean Resort & Hotel Real Estate Forum, which will be held in Tarragona, Spain, from Oct. 16-18.
Patron Capital is a Pan-European private equity real estate investor, representing €3.4 billion of capital across several funds and related co-investments. The company’s past and current hospitality platforms consist of more than 60 multi-branded hotels spread across 13 countries, including Generator Hostels, Luxury Family Hotels, Jupiter Hotels, The Spencer Hotel Dublin, Staybridge Suites, Hotel Arts Barcelona, the Bratislava Carlton hotel and 3 Linder Hotels in Switzerland.
At the company, Yazbeck leads all aspects of origination, acquisition, underwriting, execution and asset management of new and existing investment opportunities in Patron’s hospitality sector investments. Ahead of the conference, he shared his insights on how hotel investment in Europe is changing and the top criteria to know when looking to acquire a hotel asset.
1. How do you think the hospitality investment market has changed in Europe and the Mediterranean in the last year?
Wider political events have caused a certain degree of nervousness in comparison to a couple of years ago and it is possible there may be further uncertainty to come. This is affecting the market in terms of transaction volumes and developers having the confidence to start new ground-up development. These political factors are bringing opportunities, too, however, and we believe that transaction volumes are set to increase as more non-performing loans in countries across the continent hit the market.
Transactions in 2017 have been driven by funds reaching end of their hold period and the subsequent restructuring of portfolios, rather than high income growth. Investors have continued to pursue yield, and move into more secondary and tertiary markets. We have also seen investment volumes gradually intensifying, as many markets display a sharpening of yields and owners wanting to sell now in the face of potential future uncertainty.
Currency fluctuations—in particular the strength of dollar-pegged currencies—have made Europe more attractive, both to investors and tourists, for whom exchange rates are effectively providing a discount on what was previously becoming an expensive market for overseas investors and visitors. This has provided a boost to the sector across Europe and particularly in the UK, where the EU referendum result has caused a devaluation of [the pound].
Despite geo-political issues, terrorism, and economic volatility, the tourism industry has shown resilience and travel remains on the increase. The positives are that investor appetite for Europe remains high, where property markets are increasingly supported by global investment and reliant on healthy overseas economies in order to grow, but weighing up how drastically things could change has never been more important.
2. Which markets do you find most attractive in terms of investment now (regions/countries, city or seaside or asset classes)?
The appetite for investment in Europe as a whole remains high, with Western and Southern Europe, along with some specific emerging markets, particularly attractive. European property markets are increasingly supported by global investment and reliant on healthy overseas economies in order to grow, and we are optimistic the UK will remain an attractive safe haven for global investors.
The Brexit decision cannot be ignored however, and has had the double impact of a weaker sterling and a reduction in anticipated economic growth. This has provided mixed news for the sector, as Britain now becomes a cheaper destination for overseas visitors, but conversely outgoing UK travel could be dampened on the longer term. There is also a potential for further price rises in Food and Beverage and other costs, as suppliers pass on price rises.
Unfortunately, this age of uncertainty is far from over. The market hasn’t yet determined whether businesses will expand and grow, and therefore the impact Brexit will ultimately have on the wider economy remains unclear. In rapidly changing times we have found that pricing is often a stumbling block in transactions, with liquidity risk and duration risk regularly mispriced.
3. When assessing a property, what are your main criteria to decide whether it will fit in your portfolio? Have those criteria changed on the last year or do you expect them to change?
For us, an attractive investment is one where there is an opportunity to add value, improve cashflows and stabilize profits through best-in-class management partners and refurbishment or improvement initiatives. We like hotels for many reasons—a stabilized hotel business (which is normally the end-game for us after we have implemented the business plan) becomes a favored asset class for buyers, where the medium-term outlook for profit increases is normally strong. Hotels act as a hedge against inflation, and they provide diversification in a commercial real estate portfolio, meaning the sector remains attractive.
We look carefully at RevPAR (revenue per available room) as well as GOPPAR (Gross operating profit per available room) along with other key measures, in comparison to other properties in the local area and seek out top and bottom line opportunities to improve all our hotels’ KPIs through asset management. We look at cost-improvement and revenue-generation measures, opportunities to reposition via targeted capital expenditure, adding more keys and management improvements. We also analyze whether we are working with the right local partners to make sure interests are aligned, synergies and upside potential are understood, platforms and bolt-on deals can be created and environment performance and forecasts, cap rates and investment cycles are all improved. We are also able to back teams and support businesses that are unable to execute a growth plan due to restraints helping them to progress.
We also think about how we might exit before we buy, with our strategy tending to involve selling to investors who will continue to reposition the assets or to long-term holders who see hotels as yield cash-on-cash generating assets. Ultimately, with any investment, we develop a clear vision prior to purchase about what to do with the asset, the value we will add and who we will exit to.
Considering these factors helps us to determine whether the investment will work for us.
4. What is the main message you would like to share with the audience at MR&H?
Having raised €949 million for our fifth fund last year, we have the financial firepower to invest in around €3 billion of assets and are actively looking for opportunities across Western Europe. We like hotels for many reasons: a stable hotel business, which is normally the intended outcome for us after we have implemented the business plan, is a desirable asset class for buyers, where the medium-term outlook for profit increases is normally strong.
Our strategy is to back, help and support our local partners and management teams in growing their respective business. We are also always open to niche new ideas, even when eyebrows are raised, as our extremely worthwhile 2007 investment in then-fledgling Generator Hostels showed. Current market conditions and global political events mean there are opportunities out there and we will certainly be looking to capitalise on them.
5. What are you most looking forward to at the event?
The forum is a fantastic opportunity to meet key people in the hotel sector across the continent. The debates and discussions it provokes, along with the fundamental relationships we form here are a proven attraction. We’re looking forward to reconnecting with old friends and business partners, as well as making new ones. With a significant pool of capital waiting, I’m sure this forum will be extremely productive for us.